Econ 375 Sample Exam 2 Answers

Econ 375
Sample Exam 2 Answers

1.	a
2.	d
3.	a
4.	c
5.	d
6.	d
7.	a
8.	An increase in the nominal money supply will decrease interest rates. Lower interest rates will lead to greater investment spending which will then stimulate GDP through the multiplier effect.
9.	a) r falls; investment rises, income rises, consumption rises. b) r falls; investment rises, income falls, consumption falls.
10.	In the short run, the price level will drop and GDP will expand so that output is above the natural rate. In the long run, the price level will rise until the economy is back at the natural rate of output (full employment GDP).
11.	The necessary policy mix requires an expansionary monetary policy coupled with an expansionary fiscal policy.
12.	a) Y(IS) = 9000 - 250r; Y(LM) = 5500 + 100r b) r = 10; Y = 6500; C = 4300; I = 700 d) Since Y = 6500 < full employment = 7000, we are in the midst of a recession. e) P would fall, r would fall, and GDP would rise.